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15 Cards in this Set
- Front
- Back
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finance
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the field that studies how people make decisions regarding the allocation of resources over time and handling risk
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preset value
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the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money
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future value
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the amount of money in the future that an amount of money today will yield, given prevailing interest rates
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compounding
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the accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future
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Formula for finding amount of interest gained in a certain number of years
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X/(1+r)^N
X = current amount r = rate N = years |
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Rule of 70
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70/x ... how long to double
x = interest rate per year |
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risk aversion
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a dislike of uncertainty
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diversification
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the reduction of risk achieved by replacing a single risk with a large number of smaller unrelated ones
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firm-specific risk
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risk that affects only a single company
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market risk
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risk that affects all companies in the stock market
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fundamental analysis
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the study of a company's accounting statements and future prospects to determine its value
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efficient market hypothesis
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the theory that asset prices reflect all publicly available information about the value of an asset
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informationally efficient
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the description of asset prices that rationally reflect all available information
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random walk
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the path of a variable whose changes are impossible to predict
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Is the stock market informationally efficient?
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NO. irrational psychological factors affect prices in the market
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